Speaker 1: Shake Shack was looking to hire a new chief financial officer.
Speaker 1: Fast casual restaurant chain found the perfect candidate in an
Speaker 1: unexpected place, Wall Street. I had worked at Coleman Sachs
Speaker 1: for about sixteen years. I was covering the restaurant in Factor.
Speaker 1: Katie and I worked together for a long time. She
Speaker 1: was an analyst covering our stock. The day that I
Speaker 1: knew I was looking for a new CFO, the day
Speaker 1: that I announced it, I went to our recruiter and
Speaker 1: I said, what about Katie foger I remember working with her?
Speaker 1: Do you think she might be interesting this? That same day,
Speaker 1: she had heard about it and went to her family
Speaker 1: and said, this is the job I want. Literally that
Speaker 1: same day. It was something that you know, I always
Speaker 1: wanted to take a more of a leadership role at
Speaker 1: a company. We hit it off. Katie Fogerty spent the
Speaker 1: first part of her career asking hard questions about corporate strategy.
Speaker 1: Now she's responsible for answers. I think that there's a
Speaker 1: number of things that a cell side research analyst can
Speaker 1: lend to a company, especially to a company that is
Speaker 1: in you know, high growth mode. One. It's just really
Speaker 1: a very firm, you know, ability to analyze strategic decisions,
Speaker 1: um to really get into the numbers, into the models,
Speaker 1: and to have a firm view of different scenarios out there.
Speaker 1: When those Wall Street executives move into the company seat,
Speaker 1: they bring an understanding, hopefully of the fundamentals company sector,
Speaker 1: but also what it means to be a stock. The
Speaker 1: total stakeholder perspective includes shareholders. How are we measuring the
Speaker 1: incrementality of a great offer like this? Katie's skill set
Speaker 1: so uniquely is able to harvest in her mind so
Speaker 1: much data and information turn it quickly into tremendous insights
Speaker 1: that end up driving our strategic priorities. That is her
Speaker 1: sweet spot. I look at a CFO from Wall Street
Speaker 1: as someone who can bring a breath of fresh air
Speaker 1: to a business that often can become very in brid
Speaker 1: They're extremely grounded in data, They're curious about data, They're
Speaker 1: pushing the data. They know what to do with the
Speaker 1: data and tie that into telling the story. There's a
Speaker 1: reality check that Katie brings to the business to say,
Speaker 1: you know, and I know, I think, I know you
Speaker 1: think this, but let me tell you what the data
Speaker 1: is really telling us here. She's still looking at data
Speaker 1: to predict the future. Only now she's taking it a
Speaker 1: step further. Before it was a lot of kind of
Speaker 1: sitting almost in an armchair type basis and and and
Speaker 1: analyzing different and now, you know, pieces of information to
Speaker 1: see where I thought the best investment dollar would be allocated.
Speaker 1: Here it is actually driving a plan of how we
Speaker 1: can best maximize shareholder returns. It is about leveraging data analytics,
Speaker 1: driving real insights through you know, not just your own
Speaker 1: guest data, but leveraging statistical models UM and and really
Speaker 1: kind of figuring out where the best strategic decisions will
Speaker 1: be made over time. This is an industry that really
Speaker 1: needs that type of analysis. That helped the Strategic vision
Speaker 1: UM now more than ever, and so it was incredibly
Speaker 1: exciting to start to apply that here at shake Shack.
Speaker 1: Shake Shack began as a humble hot dog card in
Speaker 1: New York's Madison Square Park. It opened his first restaurant
Speaker 1: as a kiosk in that park in two thousand four.
Speaker 1: A decade later, there were more than sixty shake Shack
Speaker 1: restaurants around the world, and in early two thousand fifteen,
Speaker 1: the company went public. At the end of one shake
Speaker 1: Shack and its licensed partners operated nearly four hundred locations
Speaker 1: and sixteen countries. At least sixty more are expected to
Speaker 1: open by the end of We always feel like we're
Speaker 1: just getting started at shake Shack somehow, you know. We
Speaker 1: kind of describe ourselves as a public startup. We have
Speaker 1: a huge footprint and white space out there that we
Speaker 1: can grow globally, and we're going to continue to do that.
Speaker 1: The pace of expansion is nothing new for this company,
Speaker 1: but maybe different is the shape. Shake Shack has thrived
Speaker 1: in high density urban locations, which provided revenues before the
Speaker 1: pandemic but returned to office patterns during COVID have been unpredictable,
Speaker 1: hampering sales growth in cities. Now shake Shack is exploring
Speaker 1: new formats as it extends its footprint in suburbs. This
Speaker 1: is not just a reaction to COVID. This is the
Speaker 1: stuff that we've been working on before. What COVID did
Speaker 1: was accelerated the pace and excitement. Frankly, for some of
Speaker 1: the things that we've been planning before, drive through amongst
Speaker 1: them as the most important. We were right at a
Speaker 1: pivotal moment of thinking drive throughs were obsolete, and then
Speaker 1: COVID hit and it was a saving grace. When you
Speaker 1: get out into the suburban areas, drive in becomes incredibly
Speaker 1: important because that's convenience and if a significant percentage of
Speaker 1: your businesses drive up, you need a smaller facility so
Speaker 1: the can be smaller. This is the first time the
Speaker 1: company has ever you know, put in and drive through.
Speaker 1: We opened up our first one in December of last year.
Speaker 1: We have six open, very exciting stuff. Drive through lanes
Speaker 1: offer long term opportunities to build revenue and increase margins,
Speaker 1: but right now they carry a higher price tag. Overall,
Speaker 1: we've seen an you know, arise in our build costs.
Speaker 1: We talked about ten to fifteen percent higher build costs
Speaker 1: across the board. Things are just costing more um. It
Speaker 1: makes site selection ever more important. It makes all of
Speaker 1: the work that we do in real estate and that
Speaker 1: whole process, you know, incredibly more important. Since Katie Fogerty
Speaker 1: became CFO of shake Shack in June, inflation has risen
Speaker 1: at a record rate, making her job that much harder.
Speaker 1: Everything that enters our business, commodities, foods, cost of building
Speaker 1: restaurants is getting more expensive. I don't see that ending
Speaker 1: anytime soon. How that We've got to continue to plan
Speaker 1: for it. And if you look at the price of beef,
Speaker 1: if you look at the price of dairy eggs, of
Speaker 1: these core things in paper and packaging, it's just meaning
Speaker 1: that everything costs us more and more and more. And
Speaker 1: we're not alone. This is happening to the entire industry
Speaker 1: right now. The industry is also dealing with a sea
Speaker 1: change on the labor front. Hourly wages have soared and
Speaker 1: the Great resignation has hit restaurants hard. Labor costs aren't
Speaker 1: going down because of the training and turnover at the
Speaker 1: thirty sixty and ninety d mark. UM. If someone you
Speaker 1: know can even figure the job out, do they stay?
Speaker 1: And and that's still not under control whatsoever. UM. So,
Speaker 1: while maybe like the actual wage inflation can taper, turnover
Speaker 1: and training costs are still elevated. We've invested more than
Speaker 1: ten million dollars in our employees over the past year
Speaker 1: and we're gonna continue to invest more. We're testing four
Speaker 1: day work weeks to help you, especially our working parents,
Speaker 1: kind of juggle that balance between childcare and your work.
Speaker 1: I know I deal with that all the time. This
Speaker 1: is really a people first company. UM. In the even
Speaker 1: an inflationary environment, you're going to see us contain you
Speaker 1: to lead with our people. Do you worry at all
Speaker 1: of that a price wage spiral not just here but
Speaker 1: in the industry, in the economy, Yes, And I think
Speaker 1: that you know this is is something that you know
Speaker 1: many business leaders are focused on um and you know
Speaker 1: time will tell kind of how all of this lands.
Speaker 1: I think the wage probace spiral continues for quite some time,
Speaker 1: and I think we probably have been a lot less
Speaker 1: aggressive than we can be, and then many other companies
Speaker 1: have been in terms of raising crisis. We've taken our time.
Speaker 1: If you look at a twenty year history of pricing
Speaker 1: in this company, we've taken about two percent a year
Speaker 1: on average. We've never taken what we could. We've always
Speaker 1: taken what we should. We have to pay people more.
Speaker 1: We have been and we'll continue to do so. We'll
Speaker 1: take a little bit of a margin compression on that
Speaker 1: as we've had to, and I think that's the right
Speaker 1: thing so that for the long term, shake Chack continues
Speaker 1: to be what we're building, which is the next generations
Speaker 1: burger joint. Shake Jack margins have come down from pre
Speaker 1: pandemic levels at the same time, the companies can act.
Speaker 1: Position has improved during COVID. We actually took two opportunities
Speaker 1: to raise capital. We have a fortress balance sheet like
Speaker 1: we've never had before. Good timing, good planning. So when
Speaker 1: we use that money, we're looking for a great return.
Speaker 1: The area with the highest potential return is right in
Speaker 1: Katie Filgrity's wheelhouse, advancing Shake Shacks digital transformation. It's amazing
Speaker 1: to sit here and think that this is a company
Speaker 1: that had essentially hardly any digital sales prior to the
Speaker 1: pandemic um And when the pandemic hit, we went full
Speaker 1: force on digital with the app, web, with third party
Speaker 1: delivery um And here we are now with you know,
Speaker 1: of our sales still coming from digital channels, even as
Speaker 1: our in shack business has doesn't count the kiosks, right,
Speaker 1: that does not count the kiosk When what kind of
Speaker 1: investment was that? Was it a home run? Is that
Speaker 1: something where you're like, Randy, this paid off big time? Well,
Speaker 1: it's something that we continue to invest in and we
Speaker 1: continue to see opportunities to improve our app, improve that
Speaker 1: guest experience, improve you know, the ways that we're incentive
Speaker 1: by using our guests to really lean into our digital channels.
Speaker 1: If you simply, you know, kind of look at what
Speaker 1: the higher frequency we get from those digital guests, moving
Speaker 1: more and more of them into the channels, and continuing
Speaker 1: to invest to drive frequency of that base. It's a
Speaker 1: really good recipe for strong long term traffic growth. From
Speaker 1: its early days as a kiosk in Manhattan's Madison Square Park,
Speaker 1: Shake Shack's brand has combined simplicity and style. The menu
Speaker 1: features classic items with a creative twist, while the ingredients
Speaker 1: and service are a significant step up from fast food.
Speaker 1: The concept was an instant success, but maintaining growth and
Speaker 1: staying relevant comes to the complex set of pressures. We've
Speaker 1: come out of the pandemic with a new world and
Speaker 1: where something that might have been an evolutionary change has
Speaker 1: been a revolutionary change. We've made changes to the way
Speaker 1: we eat, We've made changes to the way we operate
Speaker 1: that might have taken years have been compressed into months
Speaker 1: and days. The role of CFO in a company like
Speaker 1: ours that's so dynamically growing, so constantly changing and focus
Speaker 1: on digital is critical. Katie plays such an amazing role there.
Speaker 1: She's not just moving numbers around, you know, this is
Speaker 1: not your grandfather's CFO anymore. The digital infrastructure, the way
Speaker 1: we think about things now, is a monster that needs
Speaker 1: to be fed all day long, every day and is
Speaker 1: always hungry. And you could probably have a hundred and
Speaker 1: fifty digital priorities today that all our teams will fight about.
Speaker 1: Ops wants this, tech wants this, Marketing wants this, I
Speaker 1: want this, Katie wants that. Katie's job is to take
Speaker 1: all that prioritization, think it through, understand which one is
Speaker 1: going to have the best return on capital and which
Speaker 1: ones have no return on capital, and you still got
Speaker 1: to do them anyway. That's the reality of the world
Speaker 1: we live in right now, and it's it's critical to
Speaker 1: lead that in the right way. I visited a Manhattan
Speaker 1: Shack with Katie Fogerty. Our first stop inside the restaurant
Speaker 1: was an order in Kiosk, and on the burger side,
Speaker 1: you can see the option here for the bourbon bacon
Speaker 1: jam burger with shallots on top, the avocado bacon burger,
Speaker 1: as well our beloved smoke Shack. The Kiosks are an
Speaker 1: investment in engagement. We just see a guess kind of
Speaker 1: sit with the menu and really appreciate and understand how
Speaker 1: they can customize their order or the different add ons
Speaker 1: um that they have. So we really do believe that
Speaker 1: this provides them with an even better experience than going
Speaker 1: to the cash register. What's the payoff, I mean the
Speaker 1: cost to put one of these in compared to how
Speaker 1: much more a customer spends on the kiosk. We do
Speaker 1: see a very nice lift off of the kiosk um
Speaker 1: And actually this is not even uh, you know, very
Speaker 1: fancy kiosk technology. It's an iPad, what has more investment
Speaker 1: tied to it. It's just the constant innovasions that we've
Speaker 1: had to make the kiosk functionality better and better. And
Speaker 1: you know, we're driving towards kind of a parody situation
Speaker 1: where the key us and the cash register have exactly
Speaker 1: the same functionality, and we want the kiosks to be
Speaker 1: able to identify who you are and what you like
Speaker 1: to order when you come into the shack. Improvements like
Speaker 1: these take resources shake shacks. General and administrative expenses have
Speaker 1: risen as the companies put capital behind digital initiatives and
Speaker 1: the changes ripple out from there. As our digital evolution
Speaker 1: has been underway, we've had to make a number of
Speaker 1: adjustments to the layout of our current existing shack base
Speaker 1: and really rethink the flow of the shacks that we're
Speaker 1: building in order to really capitalize and enable and let
Speaker 1: our digital business thrive. And many shacks we've taken out
Speaker 1: cash registers, We've moved them around. A lot of times
Speaker 1: it's two or three cash registers that are just taken
Speaker 1: down to one. We've had to really rethink the way
Speaker 1: that the flow of our guest journey is in our shack.
Speaker 1: So one perfect example of it is we put in
Speaker 1: pickup shells here UM at most of our restaurants. Guests
Speaker 1: who are looking for that to go experience can come
Speaker 1: in and pick up the work her to go and
Speaker 1: they don't have to sit there and wait with everybody
Speaker 1: else who is who is waiting for their UM, you know,
Speaker 1: food ready to be made. We are constantly monitoring UM
Speaker 1: and identifying ways to be better in the kitchen UM
Speaker 1: and it also goes down to the products and the
Speaker 1: types of offerings that we have. You know, we never
Speaker 1: want to have something that is going to overly complicate
Speaker 1: our team member's journey. UM. We don't want to have
Speaker 1: something that's going to slow us down operationally. So you'll
Speaker 1: see a lot of our l t O is just
Speaker 1: really be building for menu ingredients and allowing our teams
Speaker 1: to kind of do a little bit, you know, different
Speaker 1: with what we already have LTO stands for limited time offer.
Speaker 1: It might be a special shake flavor, or partnerships like
Speaker 1: a recent venture with distiller Maker's Mark. But Shakeshac's core
Speaker 1: offering is the burger, and it's not just any burger.
Speaker 1: The company pledges the source premium meat that's ethically raised
Speaker 1: and cost more even when inflation is not at historic levels.
Speaker 1: I've heard a lot about the importance of the quality
Speaker 1: to you guys in terms of ingredients. Doesn't that get expensive,
Speaker 1: especially right now? Quality beef must be uh, you know,
Speaker 1: in rising rising in terms of price. I mean, we've
Speaker 1: always used premium ingredients, and those premium ingredients they come
Speaker 1: at a higher price. We always have an eye on
Speaker 1: the margin um, but we know also at the end
Speaker 1: of the day, you're running a very dangerous game. If
Speaker 1: you're trying to reverse engineer into something that you know
Speaker 1: you want from a p m L standpoint, the guests
Speaker 1: might not like it. J Chack standing firm on quality.
Speaker 1: It's also practicing transparency. Announcing plans to raise menu prices
Speaker 1: by five to seven percent in the fourth quarter of
Speaker 1: shake Shack is the best example the definition of a
Speaker 1: fantastic value proposition. However, not all customers across this country
Speaker 1: have you know, that change in their pocket to pay
Speaker 1: for that average to get at lunch or dinner. And
Speaker 1: I think they're very comfortable with that, and I think
Speaker 1: it's very interesting and very different than what others are doing.
Speaker 1: I mean, it is who they are. They're not trying
Speaker 1: to escape it. They're not trying to be something they're not.
Speaker 1: And the fact of the matter is if they picked
Speaker 1: a different path, and it's fine, it would be hard
Speaker 1: to pivot back. We are serving fresh home muscle hormone
Speaker 1: antibiotic free beef. That is a totally different thing than
Speaker 1: you're going to eat at nearly all other restaurants, certainly
Speaker 1: traditional fast food, and you've got to pay more for that,
Speaker 1: and you should want to. And when you see things
Speaker 1: like ten for dollar or two for five dollars, we
Speaker 1: can't do that because our ingredients cost more than that
Speaker 1: to bring it to you, and you should want to
Speaker 1: pay more for that. And frankly, who am I to
Speaker 1: argue from still crunchy to big until crunchy. I like that,
Speaker 1: it's delicious. I might finish this. Nearly of Shakeshack locations
Speaker 1: in the US, our company operated around the world. It's
Speaker 1: a different story. The business has grown internationally by working
Speaker 1: with licensed partners to operate restaurants. That's a trend they
Speaker 1: intend to keep going. Today we have shake Jacks in
Speaker 1: sixteen countries everywhere from China to Singapore, to the Philippines
Speaker 1: to London and beyond. We see it. There's a huge
Speaker 1: white space opportunity for US. Many restaurant brands struggle to
Speaker 1: move outside of their own core market in the United States.
Speaker 1: Perhaps it's something that's very New England, and when they
Speaker 1: try to move outside of the New England area, guest
Speaker 1: reception is just not there. Or it's a West Coast
Speaker 1: brand that takes fifty years to bleed across the country.
Speaker 1: The thing about shake Shack and the magic about it
Speaker 1: is this is a company that can sit here with
Speaker 1: only two hundred restaurants in the US today, open up
Speaker 1: one in a Tier two city in China and the
Speaker 1: guest reception for that restaurant is mind blowing. These are
Speaker 1: some of the largest opens that we've ever had. We
Speaker 1: have big plans for our licensed business. It's a really
Speaker 1: asset light ashecretive business for us. We love it and
Speaker 1: we love it when our partners overseas make a ton
Speaker 1: of money because they're gonna build more restaurants. We're gonna
Speaker 1: all continue to grow. I mean, there's so many opportunities
Speaker 1: for us to add to our licensed business. And certainly
Speaker 1: I get so many text messages from people traveling the
Speaker 1: world if there is a shake Shack there, guess which
Speaker 1: one this one is? And if there's not one, why
Speaker 1: don't you have one here? The first shake Shack in
Speaker 1: mainland China open in two thousand nineteen, and there are
Speaker 1: now more than twenty. Although the government zero COVID policy
Speaker 1: has weighed on revenues, the company is committed to expanding
Speaker 1: its presence. China is a fascinating business for us. It's
Speaker 1: it's one of the most exciting, biggest opportunity to Shapshack
Speaker 1: has over the initial a couple of years of the pandemic,
Speaker 1: they fared much better than we did here and much
Speaker 1: better than most places around the world. Today. It has
Speaker 1: been erratic, it's been lockdowns, it's been closures. But here's
Speaker 1: what's Here's what's amazing. The resiliency of the Chinese people.
Speaker 1: Our team over there is unlike anything I've witness. It
Speaker 1: is one of the toughest places to do business in
Speaker 1: the world. But our brand seems to be really resoning
Speaker 1: with people over there right now, and I see it
Speaker 1: as one of the biggest areas of growth. We have
Speaker 1: a shape chair. Restaurants haven't been resonating with Wall Street recently.
Speaker 1: The sector has underperformed the SMP five for much of
Speaker 1: twenty two, but the industry is historically resilient. Restaurants are
Speaker 1: undervalued right now. As a person who has been following
Speaker 1: restaurants since I had hair, I think restaurants are probably
Speaker 1: the most flexible and most creative of businesses that we have.
Speaker 1: The routine and the social engagement happens at restaurants and
Speaker 1: that's not changing. Just because we may or may not
Speaker 1: go into the recession, it just isn't going to change,
Speaker 1: and so the restaurant stocks will rebound. This industry is
Speaker 1: the third largest employer, you know, all the population of
Speaker 1: workers in this country. This is like the fabric of
Speaker 1: the economy and the economy will rebound and restaurant stocks
Speaker 1: will go up. If you want to trade in and
Speaker 1: out of shake Shack, you know you you just may
Speaker 1: not be the time for you. If you are a
Speaker 1: believer in the brand of shake Shack for the long term,
Speaker 1: like we are and have been, We're going to create
Speaker 1: tremendous value for our shareholders over time. We've done that.
Speaker 1: Shareholders should measure us on are we building things for
Speaker 1: the long term? And from me here for the long term,
Speaker 1: my senses, shake Shacks will be good bet. One of
Speaker 1: shake Shack's long term assets is a bright new CFO,
Speaker 1: Katie Fogerty, now has a year of experience under her belt.
Speaker 1: I wanted to know what she sees when she looks ahead.
Speaker 1: What's the opportunity for shake Shack in the next ten
Speaker 1: years that excites you the most? I have to say
Speaker 1: it is in watching our people grow and develop. Um
Speaker 1: I see a very strong growth roadmap here for the
Speaker 1: company in terms of units and and sales potential. But
Speaker 1: what that really means at the end of the day
Speaker 1: is that our hourly team members are able to grow
Speaker 1: a career with us in a way that it's unique
Speaker 1: to shake Chack and cannot be found at many other
Speaker 1: restaurant brands. We have a number of people who started
Speaker 1: off as hourly team members and are now making six
Speaker 1: figures and have equity because they've grown up through this
Speaker 1: the system and they're paying it forward by training other
Speaker 1: people to allow them to have such a great career
Speaker 1: path as well. What's the challenge over the next ten
Speaker 1: years that keeps you up at night? It also goes
Speaker 1: with people. UM. It has been a very challenging staffing
Speaker 1: environment for the restaurant industry as a whole. UM. It's
Speaker 1: been well telegraphed that you know, some people have just
Speaker 1: left the industry altogether. UM. And so you know, we
Speaker 1: know when we have high turnover, we're not operating at
Speaker 1: our best UM. And so I do think that there's
Speaker 1: an amazing opportunity that once kind of the world stabilizes
Speaker 1: and returns you back to normal UM, that we have
Speaker 1: people considering the restaurant industry as more of an exciting
Speaker 1: long term career. In terms of your role as CFO,
Speaker 1: how do you see that or your role with this
Speaker 1: company changing and developing over the next ten years. I
Speaker 1: think that you know, it becomes ever more important to
Speaker 1: have a great grasp on the insights that are driving business,
Speaker 1: on the factors that are driving your business UM, and
Speaker 1: you know that's very important for CFO to do, but
Speaker 1: also to collaborate with other business leaders within the company
Speaker 1: UM to help, you know, kind of cross pollinate strategies.
Speaker 1: You know, whatever I do in a vacuum is not
Speaker 1: going to be nearly as impactful as our entire executive
Speaker 1: leadership team coming together and acting on something. And I
Speaker 1: think that that is ever more apparent sitting on this
Speaker 1: side of the table than it was on the other
Speaker 1: side as a well street analyst. Speaking of that, what
Speaker 1: skill or what area of knowledge do you think has
Speaker 1: helped you the most in your first year of CFO
Speaker 1: m hm. I would say just a lot of grit.
Speaker 1: This has been a very challenging industry for sure. UM.
Speaker 1: I never thought it was going to be easy, and
Speaker 1: it's proved to be quite the learning opportunity coming in
Speaker 1: every day, just excited to learn something new, UM and
Speaker 1: make a difference wherever you can, knowing that I'm sitting
Speaker 1: here with a team of people growing a company that
Speaker 1: will potentially have an impact on a number of people's
Speaker 1: lives going forward. So what advice would you give someone
Speaker 1: else then, who maybe is watching and gets promoted to CFO.
Speaker 1: What advice would you give to a future CFO. What
Speaker 1: advice would I give to a future CFO? UM? I
Speaker 1: guess it would just get into the details, super super
Speaker 1: deep UM and really kind of understand and ask a
Speaker 1: lot of questions. Peel the onion. UM. I think a
Speaker 1: lot of people just don't go deep enough and don't
Speaker 1: ask the questions so that you actually cannot you know,
Speaker 1: if you if you're not versed on what's going on,
Speaker 1: you can't find root cause and you can't dry change UM.
Speaker 1: So you know, I would say, get into the details,
Speaker 1: have an open mind. It's an incredibly fun job for sure,
Speaker 1: working with people who are coming you know, everybody's aligned
Speaker 1: here to drive the future of shake Shack, but everybody
Speaker 1: comes at it from a different angle. So it's very
Speaker 1: exciting to work with an amazing team of people. I'm
Speaker 1: Matt Miller, this is Bloomberg stopt